New U.S. pipeline expected to lower natural gas prices in Central Canada

CALGARY — Consumers in Ontario and Quebec can expect to pay less for natural gas to heat their homes as a new pipeline connects shale gas from the northeastern United States to the Dawn storage hub near Sarnia in southwestern Ontario.

The Rover Pipeline last week won approval from the U.S. energy regulator to increase shipping to its capacity of 3.25 billion cubic feet per day of natural gas, transporting the fuel from Marcellus and Utica shale wells in the northeastern U.S. to American markets and, via the Vector Pipeline connection, to the Dawn hub for distribution in Central Canada.

“It will have a downward pressure,” said Chris Shorts, director of storage, transportation, marketing and utilization for Union Gas Ltd., operator of the Dawn hub.

“Prices are as low as they’ve been in the last 10 years and there’s more downward pressure, because of the incremental supply, than there would be upward pressure.”

He said he couldn’t estimate what that will do to an average bill — consumer natural gas rates in Ontario and Quebec are affected by market gas prices but also take into account transmission and management costs.

Union Gas last year increased its capacity to accept gas on the Vector connection by about 300 million cf/d to about 1.8 billion cf/d, he said, adding the actual amount delivered each day will vary according to sales contracts between shippers in the U.S. and buyers in Canada.

Natural gas volumes arriving at Dawn are already being affected by about 1.4 billion cf/d in western Canadian natural gas added late last year after TransCanada Corp. brought in discount tolls to increase the use of its poorly utilized Canadian Mainline gas system, he said.

The long-term benefits for eastern Canadian natural gas consumers come at the cost of long-term negatives for western gas producers, said Martin King, a commodity analyst for GMP FirstEnergy Capital in Calgary.

“But, over time, it will translate into more competition for western Canadian suppliers.”

He said future commodity contracts at Dawn are already reflecting lower price predictions due to the new gas sources, pointing out that prices are falling below the comparable New York gas price benchmark, a big difference from a year ago when prices at Dawn tended to be higher.

American production of natural gas has grown from 83 billion cf/d in 2014 to 98 billion cf/d now, while Canada’s has grown from 14.8 billion cf/d to 16.6 billion cf/d in the same period.